Personal Pension  

Engaging workers in auto-enrolment

To date, all large- and medium-sized companies have auto-enrolled eligible employees into a workplace pension scheme.

From now until October 2017, staging dates for smaller-sized companies will commence. So, as we approach the halfway mark for auto-enrolment staging, has auto-enrolment been a success? Recent research suggests the answer is yes.

According to the department for works and pensions, of those larger companies that have auto-enrolled employees onto a workplace pension scheme, only nine to 10 per cent of employees have chosen to opt out. With opt-out rates low, the government anticipates that nine million people will be newly saving or saving more as a result of auto-enrolment.

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It is also predicted that there will be fewer opt outs following the chancellor’s recent announcement that people will no longer have to buy an annuity to access their pension pots. This reform will undoubtedly change the way people want to engage with their pensions and how they manage their savings for retirement. In the past, it may have been difficult to understand the value of a pension compared to how much it costs, but now pensions have effectively become a tax-efficient way of saving and people will naturally take greater interest to ensure they get the most out of their investments. From a communications perspective, there will be a greater demand from people to be able to view all of their savings in one place, most likely to be online, and this is something that employers may need to consider in future.

In October 2017, the minimum contribution that employees can make to their workplace pension is due to rise from 1 per cent to 3 per cent, so keeping employees engaged with their pensions will be crucial to keeping opt-out rates low.

One of the main reasons why some employees are opting out of pensions is affordability. With more immediate financial pressures – from paying off a credit card to doing the weekly shop – we all know it can be hard to picture and plan for the long-term future. But the issue with failing to prioritise long-term savings, and specifically pensions, is that it can quickly become a case of too little too late. It is clear that if people do not start saving early and in a concerted effort, retirement may quickly become an impossible dream and this must be the message employers drive home to employees.

One of the challenges for employers is how they engage with those yet to be auto-enrolled, those currently in a pension and, importantly, those opting out. As part of the auto-enrolment of pensions, employers have a duty to educate their workforce on how important saving for retirement is. But once enrolled, communication between employer and employee about saving must continue.

The government highlighted the importance of guidance, when it announced that when people retire they would get free, impartial guidance about their retirement options, so they can weigh up the contrasting benefits of the new retirement freedoms that will then be available to them. While this is welcomed, guidance at the point of retirement is not enough. Employees need to have good-quality, clear communication and guidance about pensions throughout their working lives.